Friday, September 26, 2008

Michael Robertson Sued Over Linspire's Missing Cash

To this day, Michael Robertson has yet to explain to the 100 some-odd shareholders what happened with the millions of dollars in cash and assets that were owned by Linspire just a few short months ago. The assets seem to have completely vanished, leaving shareholders with no return on their investment or even so much as an explanation as to what happened.

In June, Robertson sold Linspire to Xandros in a back-room deal without any shareholder input or detailed notification. Even though Robertson sold Linspire three months ago, shareholders still remain completely in the dark as to the financial details of the transaction. How does that pass any smell test for investors?

Michael Robertson - Greedy, crook or just incompetent?

At the time the deal was announced, I predicted it would take a lawsuit to ever get Robertson to go public with the details, as it was my belief Robertson's motive for this transaction was likely to hide unauthorized transactions which he may have made using Linspire's assets as his personal piggy bank to reward himself and his father-in-law as well as fund his other companies. It appears I was right in my prediction as a lawsuit has now been filed against Michael Robertson and Linspire's then-CEO Larry Kettler in an effort to force Robertson and Kettler to finally explain to shareholders what happened.

Click here for a copy of the suit with all the details of the allegations.

The lawsuit is a "derivative suit" which is a lawsuit instigated by a shareholder of a corporation, not on the shareholder's own behalf, but on behalf of the corporation. The shareholder brings an action in the name of the corporation against the parties (in this case Robertson and Kettler) who allegedly caused harm to the corporation. Such derivative suits are often brought against officers or directors of a corporation for violations of fiduciary duties owed to the shareholders vis-a-vis the corporation. The derivative suit against Robertson and Kettler was instigated by Kevin LaRue, the one-time VP of Marketing for Linspire and a current shareholder, but any proceeds of a successful action are awarded to the corporation, benefiting all shareholders, not just LaRue.


Because Michael Robertson was the Chairman of Linspire's board and apparently their only board member (shareholders have never been given notice of anyone else having been added to the board since Robertson fired all the other board members over a year ago), it would be improper for him to make deals that would only benefit him as the majority shareholder. The lawsuit alleges Robertson did not fulfill his fiduciary responsibility to not only act in his best interest but in the interest of all shareholders.

Regardless of the ultimate outcome of this suit, if nothing else, it will hopefully, once and for all, bring to light what happened to Linspire. The minority shareholders have a right to know, and it's unfortunate it has taken this lawsuit to get any information form Robertson.

If my suspicions as to Robertson's actions and motives were unfounded, why wouldn't Robertson have come forward with all the books and details long before now? What is he hiding? Why is it taking a lawsuit to bring things to light? Robertson's behavior simply enforces my belief that he was in fact taking advantage of Linspire shareholders and is doing everything he can to cover up his actions.

A year ago, Michael and I disagreed over what was best for the future of Linspire and the shareholders. I resigned and Michael got his way, insisting he knew what was best for the future of the company and that he could return more value to employees and shareholders than the plans I had proposed. So far Robertson has produced nothing of value for the shareholders and the company appears now to be gone. Is Robertson a greedy majority shareholder who navigated things to make sure he got all the assets, a crook who stole the assets, or is he just incompetent, having squandered millions in one short year?

Hopefully this suit will once and for all uncover the truth and the shareholders will finally know what happened with their investment in Linspire and Robertson.

Kevin

PS: "Xandros has done more than any company to put Linux in front of users..." ~ Michael Robertson (More than Ubuntu? Novell? Red Hat? Linspire even??? Robertson said this recently. With statements like this, you can see why I have a hard time believing anything else he says.)

39 comments:

Bartski said...

I just got latest Michael's Minute today. He's just too busy defending MP3tunes from EMI to respond to Linspire's shareholders...even though he really, really wants to. Honest injun and cross his heart.

And speaking of mp3tunes, I'm really digging Mediamaster. Thanks for the recommendation.

Kevin Carmony said...

Bartski,

Glad you're liking Mediamaster. Pretty cool service and much nicer than MP3tunes.

As for Robertson's latest Michael's Minute, all the ruling said is that HE can't be sued IN NEW YORK. He can (and I assume will) be sued in California. He didn't win the case, just jurisdiction, end even there he lost for MP3tunes.

I've also heard rumors that Emily Richards (President of MP3tunes) and others have now left MP3tunes and that company is down to only a few employees.

I wonder if Emily got the same knife in her back that so many people who have worked for Robertson got as a parting gift.

Kevin

Carl said...

I'm really glad you're keeping track of all of this as although I'm not a shareholder, I am curious as to the outcome of this whole situation. It just isn't right. Even if (Robertson) didn't do anything wrong in the sale, he is doing something wrong by being so opaque.

Duane said...

So....since this was filed on Aug 21, and the defendants had only 30 days to respond (I assume they were served quickly)...was there a response?

Nathan said...

This would all be really angering if it simply wasn't just so sad.

That being said, I've thrown my full support toward Ubuntu. Shuttleworth is a model that all other Linux people need to look up to.

2 releases per year and a huge development community that believes in and stands by the company.

At least Lindows/spire had a good community.

Nathan/AlexDeGruven

Kevin Carmony said...

Nathan,

I agree with you on all counts.

Shuttleworth has been a true leader in the Linux space, and the Linspire community was great. I'd like to hope some of the credit for that community comes from me having been so active there with thousands of posts. (Dating DNA users have that same level of input to the CEO. I'm building the same sort of community there.) I'm sure communication with Linspire leadership (Robertson, Kettler) on the forums came to a complete halt when I left.

Kevin

Kevin Carmony said...

Duane,

I believe they responded a few days ago. I'm trying to get copies to review. Again, it's a real shame that lawyers are getting answers which shareholders haven't gotten. =(

I'll certainly be reporting what I find.

Kevin

Anonymous said...

I had the misfortune of working for Michael Robertson at MP3.com. He's one of the most vile people I know, both professionally and personally. None of this surprises me one bit.

jwbiii said...

Wow...
I cant wate to see what happens... was it around when that suite was filed that we got the letter about digital cornerstone shutting down?

on a funny side note...

I bet MR is totally kicking himself in the rear now...
one of the videos on that dell has relesed on the mini states that "we are trying to make linux easy enough for grandma....

I i had a dollar for for ever time i heard MR say that I would be a happy person... I wonder if he will try to figuer out a way to sue dell....
---
here is a link to teh dell video on youtube.
http://www.youtube.com/watch?v=xb1iMYODSjM

i have one of the minis on order
it is due some time toward the end of the month. I like what i am seeing in the video from a UI and ease of stand point.
I will post a blog review and partial OBE "unboxing" when the system comes in...

Kevin Carmony said...

jwbiii,

Nice video about the Dell/Ubuntu mini PC.

This is yet another reason I believe Xandros (ala eee PC) is irrelevant. It's a real shame that Robertson unloaded Linspire and CNR to Xandros instead of keeping Linspire's relationship with Ubuntu in tact.

Kevin

Anonymous said...

Shuttleworth has done a great job with marketing... Some distros give back to the linux community by contributing code... Mark gives back by massive marketing spend... Some criticize him for this, but I think it is needed.

Kevin Carmony said...

Ubuntu has also contributed a lot of code. They have over one hundred employees on their payroll, most engineers, and they give most all their code back.

Kevin

Anonymous said...

It's amazing how the more money someone has, the more greedy they tend to become.

I don't know if Michael is a crook, but he's certainly greedy and ever since he tried to convince Linux users that running as root was a good thing, I knew he was incompetent.

army

Anonymous said...

Well, Shuttleworth is anything but poor, and he doesn't seem too greedy.

Kevin Carmony said...

Well said. I know lots of very wealthy people who are extremely generous, including Shuttleworth. I've heard Robertson was a jerk when he was broke too, pre MP3.com.

Kevin

Anonymous said...

can't say much about robertson. met him in the late 90's while building a ecommerce site for a used cd reseller. robertson wanted to partner up with us, gaining access to our 600K+ plus title inventory, while building mp3 locker.

he basically wanted to use our inventory to keep him legal while he was streaming to his subscriber base.

my advice to our board was like nancy reagan's - "just say no". fortunately, they listened to the advice, and we avoided being a part of the mp3.com suits and meltdown.

after we said no, he had buyers out all over california hitting our retail outlets for titles, spiking our sales figures there. about a month later, our return rate was soaring. did they just buy too many, as robertson claimed, or did they rip cd's like crazy (and then return them)? who knows?

needless to say, we were not too impressed with man.

Anonymous said...

I worked for Michael at MP3.com also. He was a real arrogant asshole. MP3.com was the best company I have ever worked for with the worst founder I have ever worked for.

D. Spink said...

Is there a feature to place on "permanent ignore" the usual cast of anonymous trolls, envious haters, and fired employees who always seem to fill up the comments section when someone high-profile is discussed? I don't know if Robertson did or didn't do anything shady at Linspire - I DO know that listening to people he fired, as if they were "objective," is tantamount to expecting dumped girlfriends to sing one's praises.

Yes we all know schadenfreude is a full-time career for some keyboard heroes, but maybe it's worth recalling that trolls who post anonymous slander about people they've never met are the dryer lint of 'net discourse: ubiquitous and inexplicable. And, in general, fired employees who badmouth the folks they previously took paychecks from are a close second - self-proclaimed "bloggers" or not.

As is always the case, I suspect there's two sides to this story - just because someone has the time and vitriol to publicly beat the drum of their own version of reality doesn't make it thereby definitive.

D. Spink

Sebastian said...

Funny thing i am reading this from a Freespire based computer :)

Anonymous said...

d. spink said
[...] As is always the case, I suspect there's two sides to this story - just because someone has the time and vitriol to publicly beat the drum of their own version of reality doesn't make it thereby definitive.

There is a big difference betwen the classical advice "hear both parts" (before judging a dispute) and the contemporary "fair and balanced" meme that denounces everyone "taking a side" as "judgemental" and "partisan".

Kevin Carmony said...

D. Spink,

I can't speak for those who post "anonymously," but I am certainly not posting that way. Anyone is free to email or contact me at anytime. (I'm not all that sure that "D. Spink" is any better than "anonymous." I actually post with my full name and don't hide in anyway who I am.)

I am very careful when I make a post that it is factual. In this case I posted the actual lawsuit filed against Robertson.

It's a fact that Linspire hasn't had a shareholder meeting in over a year. It's a fact that the Xandros sale was three months ago. It's a fact that shareholders have been given no information about the transaction. These are all undisputed facts that anyone can judge for themselves. I can't imagine "another side" to this story that would make any sense. It's simply irresponsible.

Usually where there is smoke there is fire. When you have so many ex employees with very little good to say about a person, it usually has some merit. Employees don't complain about good bosses.

If anyone would have good insight into what Robertson is like, it would be former employees. These are people who worked with him and witnessed first hand what he is like.

Keep in mind that Robertson is, by anyone's standards, an incredibly litigious individual. He seems to always have a few lawsuits going on at all times. I'm sure that intimidates many former employees from speaking out publicly.

Lastly, I'd like to point out that I for one wasn't fired. I resigned after growing tired of Robertson's behavior.

I think shareholders deserve to know what happened to their shares of stock and their investment. I don't think it's sour grapes to want that.

Kevin

John Coonfield said...

Oh, my stars and garters! I agree with Kevin Carmony for a change. After exchanging mortar rounds and grenades with you in the Lin/Freespire forums for quite some time, I must say, you nailed it here in this blog entry.

John Coonfield aka lunixfanboy

Kevin Carmony said...

Hey John. Even though we may have had our disagreements over aspects of the *spires, AT LEAST I was there on the forums so you COULD disagree. You can't please all the people all the time, but you CAN at least make yourself available for discussions.

Linspire had the best community I have ever had the pleasure of belonging to. I've been very happy with Ubuntu as a distro, and they too have a good community, but still nothing like we had at Linspire.

Anonymous said...

"Ubuntu has also contributed a lot of code. They have over one hundred employees on their payroll, most engineers, and they give most all their code back."

BS. You are lying. Majority of their employees work on launchpad and landscape which are all closed and proprietary. Where is their code contributions to any upstream project?

Look at

http://www.kroah.com/log/linux/lpc_2008_keynote.html

Kevin Carmony said...

As the former CEO of a user-friendly desktop distro, I can assure you that the maintainers of the Kernel rarely accepted our changes. They didn't always see the need for the things we added.

The point is, the vast majority of code Ubuntu engineers are working on is open source and available for all.

I have friends who work at Canonical, and I can assure you most Canonical engineers are not work on Launch Pad.

Kevin

IGnatius T Foobar said...

Was any of this ever relevant? I've never heard of anyone actually running Lindows (sorry... Linspire) on their computer. There was lots of capital, lots of marketing, and a few well-executed steps into the preload market, but Lindows preloads were quickly erased to make way for Ubuntu, Red Hat, or whatever smelly turd Microsoft happened to be offering that particular year.

Anonymous said...

"As the former CEO of a user-friendly desktop distro, I can assure you that the maintainers of the Kernel rarely accepted our changes. They didn't always see the need for the things we added."

It is YOUR job to convince them. Point me to LKML list archives for the number of patches Linspire has send. How many kernel developers did Linspire employ?

"
The point is, the vast majority of code Ubuntu engineers are working on is open source and available for all."

I don't believe this claim but even if assumed to be true, participation in open source does not mean dumping code over the wall. It means working with open source projects to merge changes for the improvement of everybody. It is something Canonical is failing badly. I have heard directly from many upstream projects on the lack of participation from Canonical.

"I have friends who work at Canonical, and I can assure you most Canonical engineers are not work on Launch Pad."

Should I trust you or should I trust Canonical? I have heard directly from Canonical people that over 50% is working on launchpad. Besides you are the one who made the incorrect claim that all code is available. It certainly is not.

The only Linux vendor who does open source all its code is Red Hat and it is also the the largest contributor to linux. Is it a coincidence that it is also the most profitable Linux vendor? Canonical is still not a profitable entity and losing more money every year.

Kevin Carmony said...

Foobar,

Linspire was the leader in OEM pre-installs of desktop Linux. We had a very profitable year the last year I was there, and we had millions of dollars of cash in the bank. So yes, to the 100 some-odd shareholders it is relevant to know what happened to that money.

I agree that Linspire tanked big time this past year after most of the best people had left, but shareholders still have a right to know what happened to their investment.

Kevin

Kevin Carmony said...

And Red Hat has taken the server-market cream and pretty much ignored the much more difficult end-user desktop market. Their CEO recommends Windows for your desktop.

http://tinyurl.com/redhatwindows

Kudos to Ubuntu (and previously Linspire) for investing heavily in trying to make Linux better on the desktop, not just servers.

Kevin

Anonymous said...

Sounds like someone is a disgruntled Debian fanboy upset that Ubuntu has accomplished what Debian was never able to--make Linux approachable for the average computer user, not just geeks.

jwbiii said...

Well I guess I cant have an opinion on things because I worked at lindows/linspire. Linspire was one of if not the best place I have worked so fare... We had a great team of people and I think most of us believed in the dream of making an easy to use Linux distribution. I feel that ubuntu is taking things in the direction that they need to be going. --- But all that is really off topic as a wage slave that excercised some of his stock options i would like to know what happened to whatever money was there and what the final valuation was of my shares.

Saist said...

Linspire was the leader in OEM pre-installs of desktop Linux. We had a very profitable year the last year I was there, and we had millions of dollars of cash in the bank. So yes, to the 100 some-odd shareholders it is relevant to know what happened to that money.

If I recall correctly, Linspire/Lindows was sold on WalMart PC's as well. I remember back in 2004, 2005, and 2006 reading that WalMart sales of Linspire systems were in excess of the recorded number of Macintosh systems sold directly from Apple. Knowing what little I do of WalMart, I can't see them hanging onto Linux computer sales unless the units were moving in significant numbers.

***

As far as MR goes... my guess is he's just a jerk. Can't say I ever worked for him, but pretty much everything he does is designed to grate somebody the wrong way. Case in point would be Lindows / Windows naming.

***

Also, on the subject of the Postscript from the original post. What about Mepis? It was launched long before Ubuntu ever came around, and largely pioneered the LiveCD concept as a usable desktop. It's only been in the last couple of releases / months that other distributions have started offering tools like automated Nvidia or ATi driver installs that Mepis had back in 2003. In some cases, the Mepis Assistants are still un-answered for in other distributions. I think it might be right in saying that Mepis beat Linspire to the punch of delivering a granny friendly distro. Personally, Dell made a mistake by going with Ubuntu and a Gnome desktop for their Linux systems, instead of getting a KDE desktop like Mepis, but that choice seems to have worked out for Dell.

D. Spink said...

Oh heavens - I posted the URL of our parent company specifically to ensure one could authenticate my real-life existence with trivial effort.

A few things to remember, about how things actually work:

1. "Where there is smoke there is usually fire" is in fact intellectual fatuity taken to a self-parodying extreme. In fact, where there are people pointing at smoke as evidence of presumptive fire - there's much more likely to be a smoke machine behind the curtain, pumping out clouds of nonsense. This isn't kindergarten, and "because everyone says so" isn't factual support for anything. Urban legends don't become true through repetition.

2. In the US, anyone can sue anyone at any time for any reason - it is a basic principal of our civil legal system. And mostly it works - except it tends to generate a certain percentage of content-free lawsuits. So the fact that someone sued somebody is hardly evidence of anything more than the existence of enough paper to print the lawsuit.

3. Civil complaints are a form of protected speech under English common law. One can say anything snarky about someone in a lawsuit and not be liable for defamation-ish counterclaims. It's worth remembering - when a rumor is spread via lawsuit and not via actual everyday words, sometimes there's a deeper reason.

4. Being involved in litigation is highly correlated with being an executive officer of a public company. Thus, saying that such a person is "litigious" mistakes correlation for causation in a trivial way. As a professor used to remind us: "lawsuits happen in business for two primary reasons; either you are unsuccessful and everyone sues everyone else looking for a scapegoat, or you are successful and everyone tries to grab more than their fair share." The existence of lawsuits floating around this guy is 100% to be expected given what he does for a living - it's like saying a soldier is clearly reckless because he always seems to have guns nearby.


To be clear: I don't know Robertson, never met him or worked with him. And I don't claim to know the merits of this "where did the cash go" claim - but I do know that corporate governance, generally, doesn't require the Board to inform shareholders of every expense they incur with company money.

So there may be shadiness here, or there may not be. You have every right to point folks at the lawsuit and encourage them to read it - and even slashdot seems to have taken the bait. But, apart from any actual evidence contained or referenced therein, the rest of your screed here is far more hot air than substance. Lynch mobs are always popular tools when seeking to demonize "Then," but they aren't very well-regarded as substitutes for actual, just explorations of the facts on the ground.

Regards,

D. Spink
866-966-7445 (in case you want to confirm that I'm really me, honest)

Kevin Carmony said...

To be clear, I DO know Robertson and worked with him for over six years. Selling a company and not giving shareholders any information shows his disregard for investors. Defend that all you like. We just have different opinions of how shareholders and investors should be treated.

Kevin

D. Spink said...

No, Kevin, as I've gone to somewhat tedious pains to make clear, we don't disagree on that point. In fact, I am in (general) agreement and myself tend to over-communicate with our shareholders as I've found it minimizes the risk of bad relations developing.

However, I'm also not running a public company, don't face a litigious shareholder base, and need not concern myself with SOX provisions, legal counsel, or SEC mechanics in doing so. I've done all that before, and the rules aren't quite as simple when one is walking that particular tightrope.

By all means, if he's done wrong by the spirit and letter of the law with how this asset sale has been handled, hold is feet to the fire - I did that, as a career, for several years with small public companies who were of the habit of "taking the money and running" in the early 2000s, so I'm all for it myself. I'd suggest simply that you hold yourself to a higher standard, in doing so. No need to demonize or smear someone, if they've really done wrong - it just distracts from the real issues. I say this having made this mistake myself many times, and fully aware that I'm likely to fall right into it again in the future. Be smarter - let the facts make your case and you'll step past the petty interpersonal politics that tend to trap us all.

Regards,

D. Spink

Kevin Carmony said...

I wish someone had warned me about Robertson before I invested in him. The Internet is a valuable place to learn about someone, what they've accomplished, what others think about them, and so on. I believe that's the nature of a BLOG, to tell the world what you think.

I have only shared either facts or my opinions. It's up to others to judge for themselves what to make of those facts and opinions.

Kevin

Duane said...

@D. Spink

Linspire was not a public company, the stock was not traded on the open market, and being private, was not subject to SOX requirements. This situation would be much more interesting if it had been public, because what may be civil issues would instead be criminal.

All of the shareholders we're talking about were former employees that had received options as part of their overall compensation package. These were not professional investors - these were people that spent many years working for the company and hoped to share in its success. Some even took lower-than-market compensation packages based on the opportunity to gain an equity stake in the company they were helping build.

I exercised my options when I left (not fired) because it seemed a reasonable bet based on the modest level of investment required. I wouldn't be particularly upset if those options ultimately ended up being worthless (it wouldn't be the first time for me) - but only if they became worthless "fairly", not because some multimillionaire decided that the company was his personal piggy bank as this lawsuit indirectly alleges.

I don't know if any of the allegations in this lawsuit are true - I do know that I've received no material information about what happened to the money I invested and that's really odd in my experience with such situations. According to the complaint, it would seem that there should have been enough money that I would have received *something* in return for the money I put in, even if only pennies on the dollar.

All I'd want to know is whether MR fulfilled the fiduciary requirements of his stewardship of these minority investments.

It really doesn't seem like too much to ask, *especially* from a guy that publicly positions himself as a person that righteously stands up to greedy, rich companies.

Kevin Carmony said...

Even employees had to BUY their stock, with cash. Employees were not "given" stock, they were given "options" to BUY stock at a certain rate. Some employees spent tens of thousands of dollars to exercise their options and buy their stock.

That's one of the problems I have with Robertson, he treats $20,000 from an "employee" differently than he treats a $500,000 investment from his father-in-law.

I guess if you're Michael's father-in-law, you appreciate the preferential treatment, but if you "only" work years for him, and give of your dedication and hard work, don't count on him looking out for your best interests.

The bottom line is there are around one hundred shareholders who have been left completely in the dark as to what happened to their investment. That's wrong in my book.

Kevin

greg said...

tha blind that believe robertson isnt just a theiving basssturd are all fools.